This morning, UBS Group AG is the focus after it filed a lawsuit for $200 million against Bank of America Corp. (NYSE: BAC).
Bank of America is accused by the Swiss bank giant of not honoring indemnification contracts related to mortgages that were issued risky by Countrywide Financial, which BAC purchased in 2008.
This lawsuit was filed at the New York State Supreme Court and focuses on UBS’s creation of mortgage-backed security using Countrywide loans. UBS claims that Countrywide agreed to indemnify UBS against any claims related to poorly underwritten mortgages or fraudulent loans.
UBS’s stock price is relatively flat today.
How did UBS arrive at the $200 Million figure?
UBS has already suffered significant financial consequences as a result of the mortgage-backed securities mentioned above. The bank settled with the U.S. Federal Housing Finance Agency for $885 Million in 2013.
UBS also settled in 2016 with Federal Home Loan Bank of San Francisco for an amount that was not disclosed. The Countrywide loans were the subject of both settlements.
UBS claims that despite extensive discussions on compensation with Bank of America, which included $53 millions in legal fees, the second largest U.S. Bank refused to meet its obligations. UBS didn’t provide any further details on the process by which it arrived at its $200 million estimate.
This case demonstrates the legal fallout of the 2008 Financial Crisis, especially in relation to residential mortgage-backed security. UBS is seeking coverage of settlements associated with these securities, rather than liability directly for the diminished value.
The financial crisis in 2008 was a global problem.
Countrywide Financial became America’s largest mortgage lender under Angelo Mozilo by focusing its attention on subprime clients. The lending practices of Countrywide Financial, often involving low monthly payments with minimal documentation, were a major contributor to the burst housing bubble, and the subsequent financial crisis.
The acquisition of Countrywide by Bank of America for $2.5 Billion in July 2008 proved to be a very costly one. Legal and other costs incurred by the bank in connection with both Countrywide and Merrill Lynch purchases totaled tens and tens billions.
Bank of America is yet to respond to inquiries about the suit. Financial and legal experts will closely monitor the case filed under UBS Americas et al v Countrywide Home Loans Inc et al. It could be a precedent for other similar indemnification cases during crisis times.
Bank of America Corp shares are lower on Wednesday morning.
The post UBS has just filed a suit against Bank of America could be updated as new information becomes available
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